Where I practice we have only 2 belts, kyu grades are white and dan grades are black + hakama.

I think that this is the way that the majority of dojos adopted. Different colored belts at different levels might be useful to the sensei to quickly identify the people who are at different skill levels in a large crowded dojo.

Down here though its usually me and about 5 other regulars and the sensei plus 2 or 3 newbies that come to "see if it suits them" every now and again - thus no need for coloured belts.

Infact, in our dojo, gradings are absolutely meaningless. There are 5th kyu's who are miles better than 3rd kyu's and the reason for this is that they were unable to take the time off work to travel to the place where you go to grade infront of the the federation instructors / judges.